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AIG Asks Greenberg's Starr to Inform Court if He'll Sue Company

American International Group Inc. (AIG) filed legal papers Wednesday asking its former chief executive to inform a federal court if he will challenge the company's decision to stay out of his lawsuit against the government.

The suit is being pursued by AIG's long-time former leader, 87-year-old Maurice R. "Hank" Greenberg, through a company he leads. The entity, Starr International Co., was long one of AIG's biggest shareholders.

The suit contends the U.S. government extracted onerous terms in its rescue package for AIG, and seeks about $25 billion. The U.S. Court of Federal Claims in Washington, ruled in July that the case could proceed, after federal officials sought to dismiss it. The court also required AIG to decide whether it would join Starr's complaint.

News of AIG's possible involvement in the lawsuit earlier this month unleashed a torrent of criticism that the insurer appeared ungrateful toward taxpayers for the government's rescue effort, one of the biggest of the 2008-09 crisis.

AIG said in its Wednesday filing that it wants to close the loop on its role in the lawsuit, after its board voted unanimously on Jan. 9 to pass on participating.

Starr's attorney, David Boies, said during a Jan. 10 television appearance on CNBC that "we're looking to the government, we're not looking to sue AIG."

A spokeswoman for Mr. Boies declined to comment on AIG's filing.

Starr could seek to overturn the board's decision, the AIG filing notes. If it does so, Starr would face certain hurdles, including demonstrating the request for AIG's participation in the lawsuit was "wrongfully refused." The suit also includes some claims that can be pursued without the AIG board's participation.

AIG attached a letter to the court filing that attorneys for its board sent Wednesday to Mr. Boies recapping many measures that directors have taken since September, when Starr in court filings demanded that the insurer respond to its invitation to join in the lawsuit.

The board retained counsel to help it consider how to respond, reviewed extensive materials about the lawsuit claims, heard legal briefings and ultimately ran a mock trial on Jan. 9, in which lawyers for Starr, the U.S. Treasury and the Federal Reserve made presentations.

The board then deliberated. "Each director stated his or her view that the Demand should be refused for one or more multiple reasons, including the low likelihood of success on the merits, the realistic potential damages," and "the potential harm to AIG's goodwill and the positive image that AIG had worked so hard to restore since September 2008," among other factors.

The letter said AIG's current chief executive, Robert Benmosche, said that "AIG had no choice but to honor the deal AIG struck" in the crisis, and that "AIG should continue to focus on the future, not the past."